ACQUISITION PROCESS

Tracey Underwood of PACE Solutions looks at the nuts and bolts of assimilating an existing practice into your own

In recent years, there has been a significant amount of activity in firms acquiring other Financial Advisory practices. This is likely to continue as firms exit the industry either due to owner retirement or pressure from regulatory, professional indemnity and capital adequacy requirements. There have been a few articles recently which have focused on the due diligence side of acquisitions; this article focuses on the actual process itself when embedding the acquired firm into your practice.

When looking at the acquisition process, of primary concern will be obtaining a return on your investment. In particular, if you have obtained finance to fund the acquisition then you will want to see a return as soon as possible. Therefore, you need to have a slick robust process in place to maximise your opportunities.

When thinking about a prospective purchase, start by mapping out how the acquisition will ‘fit’ into your business from a proposition and support perspective:

1. DOES THE CLIENT BANK FIT MY PROPOSITION?

This requires thorough investigation; are you focusing on the High Net Worth, Transactional Clients or both? If possible, take a snapshot of the soon to be acquired client bank; funds under management per client; where assets are held; location of clients. This analysis does not necessarily need to be conducted by the business owner and can be delegated to an experienced member of the support team.

Combine the results to obtain:

• Total Funds Under Management

• Total number of Providers

• Locality of clients

• Which policies are receiving recurring income

If possible, obtain this information electronically from the exiting firm as this will greatly speed up the process.

Once this analysis has been completed, this should show the number of clients that are not on ‘proposition’ and how easily they can be converted. If assets are held in legacy products with exit penalties and guarantees, this will make the conversion process more difficult and lengthen the return on investment. If there are a significant number of providers involved, then this will also lengthen the amount of time required to obtain accurate information.

From experience, collating policy information is particularly onerous with many providers not forthcoming with this information. This is likely to be the lengthiest part of the process and can take several weeks.

2. WILL THE EXITING ADVISER BE JOINING THE FIRM?

Generally the adviser is taken on to ensure smooth transition of the client bank into the new firm. As part of the acquisition process you need to ensure that the adviser can ‘sell’ your proposition. For example, if the adviser has not had much experience of Wrap, Cashflow, Lifestyle Planning and following processes then this needs to be built into a training programme.

Done properly, this will avoid any potential liability issues once the adviser eventually exits the business.

3. DO YOU HAVE THE TEAM IN PLACE TO SUPPORT THE ACQUISITION?

If you are taking on the adviser as part of the purchase deal then there is likely to be a set period of time before he or she eventually retires from the business.

Is it achievable to convert the clients to proposition in that time period, with the support team currently in place?

Do you have capacity within your existing support team; do you need to recruit more staff or outsource certain services?

If you recruit, is there a requirement for that member of staff once the acquisition conversion has completed?

In this case, you will want the Firm’s advisers to meet with the clients prior to the adviser leaving to ensure continuity of service. More importantly, you do not want clients to be leaving in the period following acquisition.

And finally, if your existing advisers are taken up with the acquisition clients then they may be spending less time on their own clients and opportunities. In summary, in conjunction with your Due Diligence process, take some time to think about:

1. What processes you have in place to convert assets.

2. What training the new adviser may require - this may not necessarily be technical but ‘selling’ your proposition.

3. What team and/or outsourced services need to be in place to deliver.

4. The timescale to convert clients. Can this be done within the timescale the new adviser will be in the business?

Once you have this process in place, this can be repeated for future acquisitions and refined, where possible.

About Tracey Underwood

Tracey is the owner and founder of PACE Solutions. The business provides support for financial planning firms by focusing on operational practices including; recruitment, compliance, processes, client proposition and business strategy. This is achieved not only through a consultancy process but by hands on implementation to ensure that firms achieve effective results that would otherwise not be achieved through consultation only.